Steering Through ACA's 'Cadillac Tax'

Some employers offer top-notch health care plans to lure talented individuals to the organization, and then to retain them. However, experts say that this trend is endangered by an excise tax, otherwise known informally as the “Cadillac tax,” mandated under the federal government’s Affordable Care Act.

The so-called Cadillac tax will levy a 40-percent tax on providers offering benefits that are deemed too generous. Although it won’t take effect until 2018, a sizable amount of employers already has reduced employee benefits in order to avoid the tax. Some employers have opted to make gradual changes to plans now rather than make drastic ones all at once four years from now.

In August, an International Foundation of Employee Benefits Plans survey found that 16.8 percent of respondents already had begun making changes to their plans to avoid the penalty, while an additional 40 percent strongly are considering taking similar actions.

The Cadillac tax will be levied on health plans that exceed annual limits of $10,200 for an individual and $27,500 for a family. For instance, if an employer offers its employees a plan that exceeds the aforementioned thresholds by $1,000, the employer will be taxed $400 for every worker enrolled in that plan. According to a recent Kaiser Family Foundation survey, the average employer-sponsored health plan in 2013 had an annual premium of $5,884 for an individual and $16,351 for a family.

The premise behind this tax is to bring down overall health costs by making employers and their personnel more cost-conscious. By having consumers take on more of the financial burden – higher deductibles and out-of-pocket expenses – then perhaps they will avoid needless costly procedures, thereby making care more affordable for the overall population.

Many organizations are taking action now to prevent sticker shock for its employees. By gradually making changes over the next few years, employers may be able to avoid being taxed for their Cadillac insurance, but still have Acura-level benefits once 2018 rolls around.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only. It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.

Jason Bodin has been the communications pulse for a number of organizations, including Paycom, where he serves as director of public relations and corporate communications. He helped launch Paycom’s blog, webinar platform and social media channels. He aided in the development of Paycom’s tool to assist organizations in complying with the Affordable Care Act, one of the largest changes in health care the country has seen. A graduate of the University of Oklahoma, Bodin previously worked for ESPN and Fox Sports. In his free time, he enjoys adventuring with his family, reading and strengthening his business acumen.